Netflix Inc. (Netflix) had surpassed Blockbuster, the previous movie rental leader, before making the successful transition to digital delivery of video content. But despite Netflix's success, in 2017, numerous competitors, including both established, mainstream content producers and digital upstarts, were making it difficult for Netflix to recreate its earlier dominance. Critics pointed to Netflix’s slowing acquisition of subscribers and accelerating debt levels. Netflix's chief executive officer was confronted with disruption from a variety of digital rivals. How should he respond? Should Netflix continue to try to be a content producer, competing with Hollywood’s industry leaders? Should it form a partnership with other media companies to align everyone’s incentives? Perhaps it could move into other media content areas outside of traditional entertainment. Further, there remained the question of how to treat its legacy DVD-by-mail business. As the incumbent firm, Netflix needed to respond to competitors and avoid a fate similar to that of Blockbuster.

Learning Objective:

This case was written for undergraduate and post-graduate courses in information systems and technology strategy. It offers a vehicle for students to thoroughly explore Clayton Christensen’s disruptive innovation concept. In particular, it offers the opportunity to see two disruption examples in one case. Through the case, students will

understand both demand-side and supply-side disruption;

analyze multi-objective management of a portfolio of both mature, cash-cow lines of business and emerging, less certain business delivery innovations;

understand the economics of digital goods and platform businesses, including high-fixed-cost and low-marginal-cost production functions and the cross-side network effects inherent in platforms; and